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Shell Abandons Arctic Drilling For “Foreseeable Future”

Bill DiBenedetto headshotWords by Bill DiBenedetto
Energy & Environment

Well, that well project didn’t take very long to go south. After much wailing, weeping and gnashing of teeth on the part of environmentalists, and perhaps a few remaining polar bears, Royal Dutch Shell on Monday said, “nevermind” to its controversial drilling plan in the Chukchi Sea off Alaska’s coast.

Shell will end further exploration activity in offshore Alaska “for the foreseeable future.”

In a brief “update” on the Burger J exploration well located in the Chukchi Sea, Shell said that while it found indications of oil and gas in the Burger J well, “these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.”

The Burger J well is approximately 150 miles from Barrow, Alaska, in about 150 feet of water. Shell said it drilled the well to a depth of 6800 feet this summer in a basin that “demonstrates many of the key attributes of a major petroleum basin. For an area equivalent to half the size of the Gulf of Mexico, this basin remains substantially under-explored.”

Marvin Odum, director, Shell Upstream Americas, noted in the Shell release that “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S. However, this is a clearly disappointing exploration outcome for this part of the basin.”

Disappointing for Shell to say the least, because it sank billions into this project. According to the Associated Press, Shell has spent more than $7 billion on Arctic offshore exploration.

The company said it expects to take financial charges—financial-speak for a loss—totaling $4.1B  as a result of the abandonment. It said the balance sheet carrying value of its Alaska position is approximately $3.0 B, with a further $1.1 B of future contractual commitments. Shell said a further update on the financial impact will be provided with its third quarter 2015 results.

Shell’s decision reflects both the Burger J well result, the high costs associated with the project, and the “challenging and unpredictable federal regulatory environment in offshore Alaska,” the company said.

Greenpeace, which has lead the charge against the Shell Arctic drilling plan for about three years, was jubilant. International Executive Director Kumi Naidoo said: “This is a defining day for the Arctic. It’s a huge victory for the millions of people who stood up against Shell and a disaster for other oil companies with interests in the region.

“Shell has gambled big and lost big, both in terms of financial cost and its public reputation. This has become the most controversial oil project in the world, and despite its bluster Shell has been forced to walk away with nothing.”

“This is a victory for everyone who has stood up for the Arctic,” added Greenpeace USA Executive Director Annie Leonard. “Whether they took to kayaks or canoes, rappelled from bridges, or spread the news in their own communities, millions of people around the world have taken action against Arctic drilling. Today they have made history.”

Sometimes the correct result occurs for the wrong reason. Shell’s—and Big Oil’s—big defeat had nothing to do with a sudden environmental epiphany. Ultimately, it was a dollars and cents decision to end a project that even Shell had to admit made no sense.

Image Credit Backbone Campaign via Flickr CC

Bill DiBenedetto headshotBill DiBenedetto

Writer, editor, reader and generally good (okay mostly good, well sometimes good) guy trying to get by.

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